State Of Alaska Oil And Gas Lease Bonus Bids: A Statistical Study

Abstract

Abstract State of Alaska oil and gas bonus lease bidding includes the North Slope sale where bonuses paid averaged $2,000 per acre and over 20 other sales averaging about $30 per acre. We studied these bids examining the statistical behavior of the North Slope sale bids compared to the very much lower bids of the other lease sales. The most interesting finding was that while the North Slope sale bids displayed the same disparity with respect to money left on the table which may be due to bidders' flinching, the bids of the other sales exhibited an exactly opposite disparity which may be due to the opposite of flinching, i.e., bidders "plunging" and bidding more than they would bid otherwise for these very much cheaper bonus leases. Introduction The State of Alaska offered oil and gas leases by sealed competitive bonus bids in sales from December 10, 1959, through October 23, 1974. A total of 2,858 leases were issued for bonuses totaling slightly more than $1 billion. About ninety per cent of all bonuses were paid on only one sale, the North Slope sale held September 10, 1969, in which only 6 per cent of the 2,858 leases were issued. The average bonus paid in the North Slope sale was $2,182 per acre; for the 94 per cent of leases issued in all per acre; for the 94 per cent of leases issued in all other sales the average bonus was $32 per acre. Thus, there was about a 70-fold difference in bonuses paid in the North Slope sale compared to all other sales. Bonuses in the North Slope sale are in the range of those for Federal offshore oil and gas leases which have been studied statistically. In this study, we sought to examine statistically these State of Alaska bonus bids looking particularly for the differences between the behavior of the very much higher bonus North Slope sale bids and the cheaper bonus bids of all other sales. The study consisted of a number of explorations to define the behavior of these State of Alaska bids. The occurrence of low noise bids was examined; the bids were checked for lognormality and homogeneity of variances; money left on the table was analyzed and compared to expected outcomes; aggressive and conservative bias of individual bidders in individual sales and outcomes to these biased bidders was analyzed as well as patterns of bias displayed by solo versus joint bids patterns of bias displayed by solo versus joint bids and bids involving major industry bidders versus non-major bidders. This study defined both differences and similarities between State of Alaska North Slope sale bids, other State of Alaska sale bids, and Federal offshore oil and gas lease bids. The most interesting difference we will show is that the cheaper State of Alaska bids other than the North Slope sale bids displayed an opposite disparity with respect to money left on the table than the other bids displayed. THE OCCURRENCE OF LOW, NOISE BIDS Low, noise bids are bids so low and distant from competing bids for a lease that such bids may be considered not part of the regular population of bids. Dougherty and Lohrenz defined a distribution-free algorithm defining low, noise bids. Twenty-three per cent of bids in the North Slope sale were low, noise bids using the same algorithm. For all other sales, less than one per cent of bids were low, noise bids. Three-fourths of the low, noise bids in the North Slope sale were submitted by one bidder (Champion). These observations parallel what has been observed for Federal offshore oil and gas lease sales where low, noise bids made up more than ten per cent of all bids in only two sales with one bidder in each sale submitting by far the majority of all low, noise bids. Except for these two sales, Federal offshore low, noise bids accounted for far less than one per cent of bids submitted. All low, noise bids were deleted from this study population. population.